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NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Market Participants in the Securities Market

Trading member A, which is not a clearing member, executes trades for clients and settles them through clearing member B. A client of A defaults on pay-in. Who is primarily answerable to the clearing corporation for the obligation?

Clearing member B is answerable to the clearing corporation. The clearing corporation deals only with clearing members, so B must meet obligations for all trades it clears, including those of trading member A's clients, and then recover the amount from A under their agreement.

  1. AThe client's depository participant
  2. BClearing member B, which is responsible for the trades it clears for ACorrect
  3. CThe stock exchange's investor protection fund directly
  4. DThe SEBI board

Explanation

The clearing corporation looks only to its clearing member, so B is liable for the obligations of trades it clears, even if A or A's client defaults. B then recovers from A under their agreement. The DP, the investor protection fund and SEBI are not first-line obligors for pay-in.

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